How Can Inflation Affect Cryptocurrencies like Bitcoin and Ethereum?

Investments in cryptocurrencies are appealing for many reasons. While cryptocurrencies can be a quick way for some to make money while they sing ‘wen lambo’, others prefer the trust in blockchain technology and a specific project. Some people may think that getting into cryptos is as simple as jumping on the hype train. This is primarily because of FOMO.

All of that aside, cryptocurrencies such as Bitcoin are often called an excellent inflation hedge or a store-of-value. As inflation continues to rise, how do cryptocurrencies and inflation intersect?

What is inflation?

Inflation refers to the process whereby a currency’s declining value, such as the US dollar, causes an increase in the cost of goods and services, which helps the economy grow. Cryptos, however, are not able to be altered in the same way as fiat currencies by changing interest rates.

bitcoin and ether rallied after the announcement of an interest rate hike by FEDs in May. They rose about 3.5% and 1.2% respectively. One factor responsible for large losses in crypto markets has been the soaring inflation. The United States Federal Reserve announced an increase of 0.5% in interest rates. This is the largest hike in interest rates in two decades.

Although cryptocurrencies experienced short-term price increases following the announcement of the interest rise, these price gains were not sustainable. Analysts believe that cryptocurrencies behave in line with equities and are similar to big tech stocks.

Bitcoin – An inflation hedge?

The USD’s purchasing power against BTC continued to fall in the post-pandemic period. It took a substantial dip in March 2020 and then dropped again towards the end 2020. Due to continuous money printing by the government, USD’s value also fell.

Inflation has already decreased the USD’s value by 85% over the past 50 years. This strengthened BTC’s reputation as an excellent alternative for fiat money. After reaching an all-time high at $69,000 in November 2021 bitcoin’s prices began to fall. The USD purchasing power against BTC began to increase around the same time. It increased in November-end 2021, and then again in February 2022.

Notably, USD’s purchasing power against BTC has been on an upward trend for most of the year. This puts at risk bitcoin’s inflation hedge narrative. Investors, particularly newcomers, are also affected by market volatility and the high cost of one BTC unit.

Investment alternatives such as bitcoin mining-backed ETFs or BTC ETPs offer decent exposure for investors of all levels. However, BTC traders, investors, and newcomers to the market are still plagued by the constant volatility.

Inflation and cryptocurrencies

BTC prices have not reacted negatively in the majority of bitcoin’s existence to policy uncertainty shocks. This is partly consistent with Bitcoin’s independence of government authorities. However, despite largely bearish market conditions and a significant role in setting BTC’s price trajectory for the past two quarters, socio-political factors have been a major factor.

BTC’s increasing correlation with the major indices-the S&P 500 & Nasdaq – could play a S&P 500 or Nasdaq role in the coin’s inflation hedge narrative.

Bitcoin’s value fell 57.02% to $69,000, its record high. This also hurt the coin’s ability to be used as a store-of-value. BTC was trading at $29,504.67 as of the writing date, which is close to the $30,000 psychological resistance/support level.

Since May 10, the coin has been in a rangebound trend between $31,500 to $28,380.

It is still unclear whether BTC will outperform fiat currency and traditional assets in the near future, as the market tends to be more bearish. Many analysts believe that the declining ROIs of cryptocurrency and bitcoin markets over the years have led to a maturing market.

Delivery App Rappi Launches Pilot Project to Accept Crypto Payments in Mexico

Rappi is one of the most popular Latam delivery services. Rappi, which last year achieved a valuation exceeding $5 billion in its Series G financing round, announced that customers will be able to use cryptocurrency as a payment method. Customers can purchase Rappi credit directly through the app.

The Rappi credit can then be used for payment of delivery services through the app. The company was founded in Colombia and became the first unicorn in Colombia in 2018. It is now present in nearly all of Latam including Mexico, Costa Rica (Costa Rica), Colombia, Peru Ecuador, Chile, Argentina and Uruguay. Rappi stated that the new pilot project would only be available to Mexican users, and did not mention an expansion.

The inclusion of cryptocurrency addresses the rise in the digital world as well as the need for new ways for users of the app to interact. Sebastian Mejia (president of Rappi, ) spoke out about the importance of innovation for the company’s future.

Rappi’s pillar is innovation. We are interested in the crypto industry and believe the future lies in the interconnection of crypto and non-crypto companies. This will allow for simple user experiences without complexity.

Implementation and other Instances of Crypto Integration

Although the pilot project is still in its infancy, the company announced that they are working with local exchanges to integrate their services and make it easier to use the app to transfer cryptocurrencies. Rappi mentioned Bitso (an exchange with a presence here) as potential participants.

Rappi explained that the company is working on improving the security of transactions between exchanges and the app. Others in Latam are also looking to incorporate crypto into their business models. Nequi, a Colombian fintech platform, is preparing for a entry into the crypto sector.

Japan Considers Stricter Crypto Regulations in Light of Russia Sanctions

Japan is going to tighten regulations regarding cryptocurrency exchanges amid concerns that Russia’s elites might use cryptocurrencies to bypass international sanctions. These platforms will have to verify that transactions recipients are not subject to financial sanctions.

According to Japan Today, the amendments to the country’s foreign exchange law and trade law will introduce this obligation. According to the publication, the revision will also prevent sanctioned entities and individuals from transferring crypto assets to third-party accounts.

Russia is now facing severe sanctions that limit its access to the global market for financial services and its gold and foreign currency reserves. According to reports, Russian officials are interested cryptocurrency and even willing to accept Bitcoin for energy exports. Moscow is showing increasing support for legalization of cryptocurrency, while experts and lawmakers are working on a comprehensive regulatory framework.

The Japanese government asked crypto trading platforms to improve monitoring and requested that they inform financial authorities about suspicious transactions. According to reports, the Financial Services Agency ( FSA) and Japan Virtual and Crypto Assets Exchange Association were searching for ways that Russian entities could avoid sanctions. They also ruled out blocking all Russian users.

Japanese law currently requires banks to verify that money transfer recipients aren’t subject to restrictions. However, cryptocurrency exchanges are not required to do this. Fumio Kishida, Japan’s Prime Minister, announced Monday that the government would prepare to introduce respective amendments during this session of parliament.

The crypto industry has had a variety of reactions to the conflict in Ukraine. While South Korean exchanges blocked Russians from accessing their platforms, major global platforms such as Binance and Kraken refused a request made by the Ukrainian government to unilaterally block all Russian accounts.

Optimism Raises $150 Million in Series B Funding Round Led by Paradigm and A16z

received a $150 million investment from Series B to Optimism. This solution allows you to transact on Ethereum at low fees. Paradigm and A16z co-led the round which saw the company reach a valuation in excess of $1.65 Billion. This is one of the most valuable L2 Ethereum expansion layers.

These scaling technologies are being considered by VCs as a key to the future success of Ethereum. Although Ethereum fees were relatively low in recent years, it was almost never this way during the bull market. L2 solutions emerged to alleviate users who don’t want to pay these exorbitant fees. Optimism, which is based on Optimistic rollsups, takes L1 (Layer 1) information and processes it in batches in the L2 to return the abbreviated data back to Ethereum.

According to company numbers, Optimism already saves its users $1 billion in gasoline fees and has more than $469 million in TVL (total worth locked) on its platform. This is the fourth-largest rollup per L2beat statistics.

Hiring and Advancements are two ways to expand your business.

Users were informed by Optimism via a blog posting about where the funds would go. To continue delivering features, the company plans to hire additional people to augment its large staff. Optimism currently has 18 job openings in a variety of departments. These include software development jobs and finance positions.

This latest round of funding follows the company’s Series B funding round. raised $25 million, which was also led A16z. The company praised Optimism and said that it adheres to Ethereum development paradigms. This results in a very simple transition for developers, wallets and users. There are no new programming languages or code changes required.

Sequoia Capital Designates $500-600 Million to Crypto Fund Focused on Liquid Digital Assets

Sequoia Capital, an American venture capital firm, is launching a fund to invest in crypto assets. Sequoia claims that the liquid token fund will ‘complement’ its ongoing crypto investments in a blog. Sequoia also discussed previous partnerships with crypto movers, shakers and leaders like Sam Bankman-Fried, CEO of FTX, and Michael Shaulov (co-founder of Fireblocks).

Venture capital firm Sequoia also mentioned blockchains such as Solana and Ethereum. Sequoia said that investing in these technologies has been a rewarding experience and that she learned a lot along the way. “Today, we’re doing exactly that with a new sub fund of $500-600M focused primarily on digital assets and liquid tokens,” the blog post on Thursday noted. Sequoia Capital continued:

Sequoia Crypto Fund is an extension of our larger commitment to crypto. This fund aims to be more active in protocols and better support token-only project. We also want to learn from doing. We are committed to continuing our collaboration with the crypto community and providing support for open-source research.

Last year, venture capital that is geared towards blockchain protocols, crypto assets and up-and coming blockchain startups has grown exponentially. The total $621 million in venture capital investments in 2021 was a record. Venture capital funds, which were primarily focused upon crypto tokens or blockchain technology businesses, accounted for 5.28% of total VC investments in 2021 with $32.8 million.

Sequoia Crypto Fund will invest $500 million to $600 millions in ‘liquid tokens’ and digital assets. Sequoia however says that it plans to continue to partner with other crypto teams. Sequoia Capital India was the leader of the $450 million round in Polygon’s investment round. Sequoia is regarded as one of the top 20 venture investors in crypto and blockchain. The California-based company invests in Metastable and Polychain.